Red Flags at Bidz.com - Part 2

Disclosure: Author is short BIDZ

See Part 1: 'Red Flags at Bidz.com'

Citron Research believes the bidding process at Bidz.com leaves a lot of unanswered questions. While Citron does find the Bidz site entertaining with a unique interface, the company has much to prove before it can be anointed with the big earnings multiples associated with proven business models. This report will outline some of the obvious bidding irregularities that we have observed on the Bidz website.

This report will not be a refutation to the conference call and will not address any new issues.

Let us offer one important correction. In the initial report we stated that CEO Zinberg pays himself 30,000 shares per month. This was not correct. He has been selling 30,000 shares per month from his own holdings. Mr. Zinberg stated during the recent conference call that he has reduced that number to 10,000 shares per month; as of today, there has been no public filing of this change yet.

One common complaint that Citron observed in customer postings was shill bidding. This led us to do our own homework. Citron focuses on presenting public domain information. Therefore, when we suggested shill bidding, the investing public ran with the ball and found the same problems on the Bidz website that were found by Citron. As evident in the conference call, investors have already seen these auction items: $6,000 flashlight/TV combo  and a $11,000 Television.

The problem is still ongoing as we see in the live auction for a television with an MSRP of $1,499 yet the current bid on the television as of publication is $2,776. 

In an informal study, Citron offers the linked table, which outlines not only the obvious irregular bidding above, but also a pattern in the auction of over 30 TVs over more than 3 months. Most of these TVs are bid on hundreds of times by the same three bidders.

Click To View Recent TV Auctions Table

What makes this attached spreadsheet so interesting is that all of these televisions were sold by Clear Solution Partners. The owner of Clear Solution Partners is Bidz.com co-founder Matthew Mills. Not only is he the co-founder and vendor of these televisions, he has also been an outspoken proponent of the stock as evident in the Barron’s Blog. 

The hundreds of unique bidders over $500,000 for the big yellow diamond ring on BIDZ homepage has now been the topic of much discussion and there is no need to restate those questions. Citron notes that BIDZ itself stated in the conference call that it does not know whether bidders are bona fide until after an auction closes. Therefore, Citron cannot prove that the bidding on any jewelry is fake either. Jewelry is an item that thwarts direct comparison pricing, especially on the internet.

The question that investors are left with: Are the patterns of bidding on the televisions any indication of patterns of bidding on jewelry? Do the hundreds of repetitive bids on the TVs (often by the same bidder on separate auctions at nearly the same second) represent flying fingers of a rogue actor, or a feature of the auction software that only company insiders know about?

Bidz.com is in need of a system that allows for more transparency of the Bidz site and the integrity that comes from unedited consumer feedback within their own site. Citron hopes that Bidz.com views these concerns not as the rantings of a short seller, but rather as issues demanding action in order to maintain trust with its customers and its investors.

Comments

[User 126963]

Mr. Left, it seems as though your negative comments about Bidz did have an affect on the stock price as you intended, but I believe the stock has already begun its rebound and I don't believe you are going to be able to stop it. It is interesting how you now throw in a few somewhat positive comments, maybe a little reverse psychology, as though you are not trying to harm Bidz, but help them. Well I believe you have. Any internet outlet for buying/selling is going to have some issues. There are too many people, analysts included, with very positive outlooks on this stock. I'm sure if you ultra anylize any buisness you will find imperfections, and probably a few people of questionable chracter either known or unkwown. I, along with many people, have not had all positive transactions with Ebay, but overall I feel it is a fantastic buisness. You speak of negative comments regarding bidding at Bidz, but the continued improved in sales tells me a vast majority of their customers are happy and are probably repeat buyers. As I read comments about you left from others I would have to draw a pretty poor conclusion about yourself, or are those things just unwarranted criticism? I believe this time you have picked an uphill battle, as there is a largely positive track record for Bidz. I think I would cut my losses and take advantage of the positive momentum this stock has and will continue to display, despite your comments. Regarding the t.v. sales, I think this a very small part of Bidz overall buisness, in fact I believe I heard Bidz does not profit from this portion of their website, it is more of a 3rd party set up. I believe your comments have already had their maximum affect on Bidz. The stockholders are now confident and I believe only a bad quarter or two will change the sentiment of both the stockholders and the street. If nothing else, you will make Bidz strive even harder to make sure their buisness is being run and honestly and efficiently as possible, which should mean nothing but positive things for Bidz. Oh, and by the way, you are a short seller. Good Luck, Jeff

[Johnny B.]

MR. Left should : 1st, cover your shorts ; 2nd, prepare for an SEC investigation for profiting from an article that took $$millions from BIDZ employees and shareholders ; 3rd, be able to prove that he and his partners in distruction are not the ones who placed most of those high bids, in order to strengthen their articles ; 4th , prepare for a lawsuit from not only BIDZ, but from a group of shareholders.

[Left_is_lying]

Below is a link from eBay where a $300 worth digital TV has been bid to $7001,

cgi.ebay.com/NEW-12MP-...

Mr. Left, your whole issue on that TV on Bidz does not make any sense, as we can see the "Bad bids" are common problems to any auction sites, even eBay. Web auctioners, including eBay, do not have the technique to prevent people from putting in those rediculous price. I suspect that you or your associates intentionally put those bids on those TVs on Bidz in order to make your accusation to Bidz.com.

Mr Left,In the investment community, your reputation has already been as bad as garbage, this Bidz thing ill only make to worse.

[InvestorSavy]

Listen up folks, the recent sell off only allows for an incredible discount buying opportunity for BIDZ. For a reference point, here are the real "facts" one should know: 15 consecutive quarters of positive earnings, nearly 4 years of top and bottom line growth, triple digit growth year to year, mid-level jewelry market dominance, fundamentally undervalued at current PPS, and perfect timing. Ho Ho Ho, these price levels will not be around after December.

[User 127188]

Dear Mr Left, with regard to your "alert" about the 25-year-old criminal record of Mr Aframian I find it more than a little ironic to discover that your own past has had its share of questionable dealings:

THE PANEL FOUND THAT LEFT MADE FALSE AND MISLEADING STATEMENTS TO CHEAT, DEFRAUD OR DECEIVE A CUSTOMER IN VIOLATION OF NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). LEFT'S CONDUCT WAS INCONSISTENT WITH
JUST AND EQUITABLE PRINCIPLES OF TRADE.

CONSEQUENTLY, THE PANEL BARRED LEFT FROM ASSOCIATION WITH AND FROM ACTING AS A PRINCIPAL OF ANY NFA MEMBER FOR THREE YEARS; ORDERED HIM TO TAKE AN ETHICS TRAINING COURSE; AND PLACED RESTRICTIONS ON HIS ACTIVITIES FOR TWO YEARS WHICH PREVENT HIM FROM SUPERVISING ANY AP AND REQUIRE HIM TO TAPE RECORD AND LOG ALL CONVERSATIONS WITH CURRENT
AND POTENTIAL CUSTOMERS.

www.nfa.futures.org/Ba...

[HarMegiddo]

i love matthew mills hiding his identity on some of the barrons posts. he tries to degrade eric savitzs but i guess is too embarassed to reveal who he is. im telling you, get out of bidz if you own the stock. this company is a Den of Thieves !!

[Johnny B.]

DEN OF THEIVES how biblical. Lets focus on LOVE THY NEIGHBOR, DO UNTO OTHERS, and especialy THOU SHALT NOT STEAL. Left will have his day in court(of which he is no stranger) , and later his explanation to God for his actions.

[HarMegiddo]

take a look at the certified merchant selling "ancient roman coins" right next to generic, overpriced baseball cards. i think it's safe to say if these coins were real they would be in the Smithsonian. BIDZ is a Scam!!

web-1.bidz.com/allAuct...

[User 126963]

Check ebay, you can find the same" ancient coins" there along with a dozen other sites, and believe it or not, they are usually real. They are usually part of archeological sites or shipwrecks. The vauable stuff get saved and the rest get sold. If the condition is horrible, it doesn't matter how old the coin is. They may have "value" to someone just because of how old they are. Nobody is fabricating or counterfeiting old coins. Do a little homework.

[chris_dress]

Not sure about the other auction sites...but if you buy from BIDZ and don't like you can return. Try getting your money back from ebay.

[Itsonlyme]

Bidz is a scam. Interesting how their employees and affliates can claim otherwise, but when it comes down to delivering the product and service, they fall flatly on their face.